Assessment of creditworthiness and its examination by courts according to CJEU
According to the judgement of the Court of Justice of the EU (CJEU), Czech laws imposing the obligation to invoke the nullity of a credit agreement on the grounds of an insufficient assessment of creditworthiness solely on the consumer are incompatible with EU law. National courts must examine the proper assessment of creditworthiness of their own motion and draw consequences from failures to comply with this duty.
Case C-679/18 concerned a Czech non-banking consumer loan provider. The CJEU dealt with the prejudicial question referred by a Czech court on whether national legislation prescribing that the nullity of a credit agreement on the grounds of an insufficient creditworthiness assessment can only be invoked by the affected consumer is compatible with EU law.
In the original dispute before a national court, the creditor neither asserted nor proved that they had assessed the debtor’s creditworthiness prior to providing them with the loan. The debtor did not raise an objection to this effect and did not invoke the nullity of the credit agreement on these grounds. According to the court, most defaulting creditors do not – probably also because they are rarely represented by an attorney. However, under Czech laws and the courts’ decision-making practice, such an objection may only be raised or nullity be invoked by the affected person, i.e. the debtor/consumer, within a limitation period of three years.
As the area of consumer credits is fully harmonised, member states cannot derogate from EU rules. Hence, the CJEU referred to its previous judgments, for instance in case C-377/14, pointing out the national courts’ obligation to examine, of their own motion, infringements of certain provisions of EU consumer-protection legislation, in view of consumers’ unequal position and their effective protection. Under CJEU case law on the principles of sincere cooperation, equivalence and effectiveness, infringements of EU law must be penalised following the same substantive and procedural rules as breaches of national law of a similar nature and importance, while penalties must be effective, proportionate and dissuasive.
Considering the above principles, the Czech legislation requirement that the debtor must actively raise an objection/invoke nullity is incompatible with the objectives of the directive on credit agreements for consumers. National courts thus must of their own motion examine whether there has been a failure to comply with the creditor’s obligation, and draw consequences. If creditworthiness has not been adequately assessed, it renders the contract null and the debtor shall be obliged to return to the creditor solely the principal amount, at a time reasonably possible for them. On the other hand, national courts must consider whether a debtor wishes to invoke the nullity of the credit agreement.